The Principal-Agent Problem Exists When

question 68

Multiple Choice

The principal-agent problem exists when

• A)there is no command system in place.
• B)firms operate as sole proprietorships.
• C)agents do not act in the best interest of principals.
• D)principals do not act in the best interest of agents.
• E)the future value of money is more than its current value.

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Definitions:

Income Summary

An account used in the closing process that summarizes revenues and expenses, transferring the net income or loss to retained earnings.

Closing Process

A sequence of steps performed at the end of an accounting period to prepare the accounts for the next period, including closing temporary accounts such as income summary, revenues, and expenses.

Temporary Account

Accounts that are closed at the end of each accounting period, including revenues, expenses, and withdrawals.

Unadjusted Trial Balance

A preliminary report of all accounts in the general ledger before any adjusting entries are made to ensure debits equal credits.